1993 (9) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of commission payment to M/s Krishan Chand Chellaram, Bombay.
2. Services rendered by the Bombay party.
3. Evidence of services rendered.
4. Commercial expediency of the commission payment.

Detailed Analysis:

1. Deduction of Commission Payment to M/s Krishan Chand Chellaram, Bombay:
The main issue in the appeal relates to the company's claim of deduction of commission payment of Rs. 7,40,517 to M/s Krishan Chand Chellaram, Bombay. The company argued that the Bombay party helped in procuring an export order to Nigeria under the World Bank Scheme after the initial rejection of its tender. The Bombay party initially demanded a 10% commission but agreed to 7.5%. The services provided included ensuring prompt clearance at Bombay port, loading into carriers, and maintaining liaison with offices in Nigeria and the UK. Despite these claims, the tribunal found that the evidence did not support the assertion that the Bombay party rendered significant services warranting the commission payment.

2. Services Rendered by the Bombay Party:
The company claimed that the Bombay party provided essential services, including communication between India and Nigeria, preparation and submission of bid documents, liaison with Nigerian authorities, and ensuring timely shipment and clearance at the port. However, the tribunal found that the correspondence and evidence presented did not substantiate these claims. The tribunal noted that it was the company itself that managed most of the critical tasks, including shipment and follow-up for payments.

3. Evidence of Services Rendered:
The tribunal examined the correspondence between the company and the Bombay party and found that the company managed the majority of the tasks. The tribunal noted that the company kept the Bombay party informed about the shipment and other developments, rather than the other way around. The tribunal concluded that there was no substantial evidence to prove that the Bombay party rendered the claimed services. The tribunal also considered a certificate from the Chartered Accountant of the Bombay party, which merely confirmed the receipt of commission but did not detail the services rendered.

4. Commercial Expediency of the Commission Payment:
The company argued that the commission payment was justified as it enabled the company to secure a profitable export order, resulting in a net profit per pump three times the local sale price. The company relied on rulings from the Supreme Court and the Gujarat High Court to support its claim. However, the tribunal emphasized that the test of commercial expediency must be viewed from the perspective of a businessman and supported by evidence. The tribunal found that the evidence showed the UK party was involved in securing the order, and the Bombay party's involvement was not necessary. The tribunal concluded that the commission payment to the Bombay party was not incurred wholly and exclusively for the purposes of the business.

Conclusion:
The tribunal confirmed the disallowance of the commission payment to the Bombay party, concluding that the party did not render any significant service that would entitle it to the commission. The appeal by the assessee was allowed in part, while the department's appeal was dismissed.